USDJPY managed to breach the strong barrier around 108.40 and the 50% Fibonacci of the downleg from 112.39 to 104.44 on Tuesday and it remains to be seen whether the bulls can crawl above the 200-day simple moving average (SMA), and more importantly, above 109.50 to convince traders that the bearish wave off 112.39 has come to an end.
Although it somewhat weakened, the RSI continues to hold comfortably above its 50 neutral mark, while the MACD is also keeping strength above its red signal line, both indicating that the short-term risk remains positive overall. Meanwhile, the bullish cross between the 20- and 50-day SMAs is seen an encouraging sign that the pair may maintain the recent upside direction.
A rally above the 109.00-109.50 key area could retest the 110.00 level before hitting resistance around 110.70, which is also the 78.6% Fibonacci. Beyond the latter, the bulls may stall near 111.40 before challenging the 112.00 mark.
In case the price pulls back below 108.40, immediate support could appear near 107.80, while beneath that level, the door may open towards the 107.00-106.75 region. Further down, the familiar 105.50-105.00 restrictive zone could come back into the spotlight.
Looking at the three-month picture, the pair is in neutral mood, driving sideways within the 109.50-104.44 boundaries. Therefore, any violation at the edges would determine the next direction in the market.
Summarizing, although the short-term bias is looking positive, USDJPY needs to cross above the 109.00-109.50 area to cement the rebound off the 34-month low of 104.44 and at the same time shift the medium-term outlook to bullish.